How will flooding hit your insurance premiums?

Floods affected around 1,700 properties between December 23 and January 5, causing tens of millions of pounds’ worth of damage and killing seven people. More properties have been flooded since, notably along the Thames and across south east England, and it would be a brave weather forecaster who said we won’t see further storms and deluges as winter wears on.

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The immediate effects of flooding are clearly terrible, but some effects linger on far beyond the initial disaster. For example, making a home insurance claim for flooding has traditionally meant more expensive premiums come renewal time.

But now that insurers and the government have reached agreement on covering the cost of flooding – the Flood Re scheme, which starts in 2015, will cap premiums for many of the most at-risk properties – is that still the case?

Here, we take a look at whether or not flooding will affect your future home insurance premiums.

My property was flooded, will my premiums go up?

The carnage caused by the storms around Christmas could push up the home insurance premiums of those affected. But it’s a competitive market where insurers are keen to fight for your business, and so premiums might not necessarily increase, especially if you are prepared to shop around, according to experts

The Association of British Insurers (ABI) says that, if you make one claim or more during the year, it could impact your premium at renewal. But the degree to which your premiums change depends on the cost of the claim. Relatively small claims, for example, are unlikely to make much of a difference.

Typical flood claims can cost £30,000 or more, and rarely cost less than £10,000 if there has been complete inundation of the property.

But if you do make a claim of any size, you could lose any no claims discount you’ve built up over time, which would of course make your premiums more expensive.

Risk premium

Mohammad Khan, insurance partner at accountancy firm PricewaterhouseCoopers (PwC), said any changes to premiums would depend on whether or not you live in a flood risk area.

He said that, if someone who lives in an area that doesn’t usually flood has been affected by flash flooding in recent weeks, they will likely be able to shop around and get a cheaper renewal quote because the market is so competitive.

Similarly, those affected who live in known flood-risk areas should be able to shop around at renewal time and at least match their old premiums.

In fact, says Mohammad, premiums are actually falling, and so it’s important to shop around for a better renewal quote, regardless of how you are affected.

Current state of play

Last year, the insurance industry reached an agreement with the government to cap the flood insurance element of home insurance premiums – which should lower or at least maintain the cost of insuring a property at risk of flooding. That cap stands at £210 a year for homes in council tax bands A and B, rising up to £540 for properties in band G.

Controversially, H band homes will not benefit because of the assumed wealth of the occupants – although critics point out that not everyone who lives in a large property necessarily enjoys a high income. Properties built after 2009 will also not be covered by the cap – the insurers say this is to deter building on risky flood plains.

The agreement will see the establishment of a not-for-profit scheme called Flood Re, which will be funded by a charge on all insurers totalling £180million. Break this down and it works out as an extra £10.50 levied on everyone’s home insurance premiums each year.

However, the ABI says home insurance customers won’t notice the increase as it’s roughly the same as the level of cross-subsidy that already exists between lower and higher flood risk premiums.

The Flood Re cap doesn’t take effect until 2015. In the meantime, the so-called Statement of Principles will continue to cover existing home insurance customers whose properties aren’t at significant risk of flooding. It will also cover existing customers whose homes are at significant risk, as long as the government has plans to reduce the risk within five years.

The Statement of Principles, first drafted in 2000, does not cover new customers, and also excludes properties built after 2009.

Be prepared – short term

Whatever the implications for your home insurance - as bad weather continues, it’s still important to make sure you’re prepared against possible floods, if you live in an at-risk area. Check the Environment Agency’s website for regular updates.

The better prepared you are, the less damage your property is likely to suffer, making potential home insurance claims smaller. At-risk households should also take the following steps to limit the potential damage a flood can cause.

-Make a list of important phone numbers, such as your utility suppliers and your home and car insurance providers. -Block possible water entry points such as doors, windows and airbricks with sandbags.-Move your valuables upstairs or as high off the ground as possible. Keep important documents in a waterproof container.-Unplug all electrical appliances, turn off your gas, electricity and water and remember never to enter standing water if the electricity supply is on, or if you're unsure.-Make a survival kit with food and drinks, a torch, a fully-charged mobile phone, warm clothes, and blankets.-Move your car to higher ground.

Be prepared – long term

If you have suffered flooding and fear it will happen again – and if you want to strengthen your negotiating position with home insurers – you can take steps to strengthen your flood defences and minimise damage.

There is clearly a cost attached to these measures, but any steps you can take will not only help keep a lid on your premiums, but will hopefully spare you the anguish, disruption and discomfort suffered by flood victims:

-Take up carpets downstairs and fit sealed wood or ceramic tiles or concrete.-Install flood skirts or barriers at water entry points, such as doors and airbricks.-Keep flood barriers to hand to use on doors, airbricks and cellar openings.-Install no-return valves on water outlet pipes.-Check drains regularly for blockages.-Fit water resistant doors, window frames, and re-fit skirting boards or use water resistant sealant on existing doors and windows.-Raise electrical sockets as high as is practicable.-Re-plaster walls with waterproof lime plaster and install a chemical damp-proof course.